Kinder Morgan Agrees to an Improved Buyout Offer Led by Its Chairman

A Kinder Morgan gas pipeline is being built outside Laramie, Wyo. The company, which runs 43,000 miles of pipelines, plans to go private.Credit
Matthew Staver/Bloomberg News

Kinder Morgan Inc., one of the largest pipeline operators in the country, said yesterday that it had agreed to a sweetened buyout offer of $15 billion from a group of investors led by its chairman and co-founder, Richard D. Kinder.

The buyers, who plan to take the company private, agreed to increase their cash offer to $107.50 a share, from an offer of $100 a share made in May. In addition, they will assume $7 billion of debt, Kinder Morgan, of Houston, said in a statement.

The transaction is one of the largest leveraged buyouts ever.

The buyout is led by Mr. Kinder, a former president of Enron who was ousted after a dispute with Enron’s founder, Kenneth L. Lay. The investor group includes Goldman Sachs Capital Partners, part of the investment bank’s equity business; the American International Group, the insurance company; and two private equity firms, the Carlyle Group and Riverstone Holdings.

Kinder Morgan’s board accepted the higher offer yesterday and will recommend its approval by shareholders. In trading on the New York Stock Exchange, the company’s shares rose $2.57 yesterday, to $104.27.

Some investors had criticized the initial offer as too low and threatened to sue the company. At the time, the offer represented an 18.5 percent premium over the price of Kinder Morgan shares. The new offer amounts to a 27 percent premium over Kinder Morgan’s closing price of $84.41 on May 26, the last trading day before the initial one was made.

After the May offer, the company’s board appointed an independent panel to help evaluate it. Some analysts had expected Kinder Morgan to be worth much more. Indeed, a low market valuation was one reason that Mr. Kinder cited in May for wanting to take the company private.

Paul Sankey of Deutsche Bank wrote in a note to investors yesterday: “There are megabulls on Kinder Morgan who valued it at $150, and expected a bump to $120, but this was not reflected by the market, which clearly didn’t see much upside. But the independent committee had to protect itself by asking for some kind of increase, and this offer should do enough to satisfy shareholders who owned equity worth $84 a share when the process started.”

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Kinder Morgan operates about 43,000 miles of pipelines for natural gas, oil, other petroleum products and carbon dioxide. It also runs more than 150 terminals for gasoline and petroleum products and provides natural gas distribution service to more than 1.1 million customers.

Among its larger assets, Kinder Morgan owns Plantation Pipelines, one of the nation’s main transportation networks for petroleum products, carrying gasoline from refineries on the Gulf Coast to markets on the Atlantic Coast.

Mr. Kinder has been called the anti-Ken Lay. Mr. Lay, Enron’s chairman, blocked Mr. Kinder’s career there and pushed him out in favor of Jeffrey K. Skilling, who became president and chief executive after Mr. Kinder left. Under the new leadership, Enron shunned its traditional businesses in favor of more lucrative, and riskier, trading activities. It collapsed in 2001, and Mr. Skilling was convicted of fraud. Mr. Lay died last month of a heart attack.

Kinder Morgan is largely the result of Mr. Kinder’s strategy after he left Enron in 1996. At the time, he took over Enron’s stodgy pipeline assets and quickly expanded the business through a series of mergers and acquisitions.

In 1999, for example, he engineered a merger between Kinder Morgan Energy Partners and KN Energy, a gas utility in the Midwest. That deal was followed by several smaller acquisitions of storage terminals, distribution networks and other so-called midstream assets.

Among the investors in the current buyout besides Mr. Kinder are the company’s other founder, William V. Morgan; and two directors, the billionaire financier Fayez S. Sarofim and Michael C. Morgan, Mr. Morgan’s son. Mr. Kinder owns 24 million shares of Kinder Morgan, or 18 percent of the company.

A version of this article appears in print on , on Page C3 of the New York edition with the headline: Kinder Morgan Agrees to an Improved Buyout Offer Led by Its Chairman. Order Reprints|Today's Paper|Subscribe